Unhappy hour: pushing up prices at peak times is a mistake

Stonegate Group is adopting ‘dynamic’ pricing, meaning pints will be pricier at peak times. But just because it works in the airline industry doesn’t mean it will in hospitality

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The pub is a British institution. Now that institution is under threat. Pub numbers have dropped by more than a quarter to just under 45,000 since 2000, according to the British Beer and Pub Association. More than 1,000 closed last year, with the industry body warning it is facing a “bloodbath”.

It is no surprise, then, that the sector is trying to find new and innovative ways to increase revenues. 

Stonegate Group thinks it has come up with just that. The company, which owns chains including Yates’s, Slug and Lettuce, and Walkabout, is charging punters more during peak hours. What it terms a “dynamic” pricing strategy will mean drinks are more expensive at busy times. The increase? Anywhere between 20p and £1.50 at 800 of the firm’s nearly 5,000 venues on Friday nights and Saturdays. 

Stonegate says the hikes are a move to offset rising operating costs. But this apparent attempt at achieving a sense of mutuality with customers has, as one might expect, backfired. The strategy has been roundly criticised by pub-goers on social media, with many calling for a boycott of participating venues. 

Why the pricing strategy has backfired

UK consumers are down on their luck right now. In the throes of a cost-of-living crisis and with mortgage rates skyrocketing, they are unlikely to be receptive of a “polite notice” that Stonegate is placing in pubs that they need to pay more for the same drinks. Particularly in pubs owned by a company that doubled its revenue to £1.6bn last year and saw earnings before interest, taxation, amortisation and depreciation (EBITDA) rise to £465m. 

Surge pricing is common in other industries. Airlines often charge more for flights during school holidays. Ride-hailing apps such as Uber routinely put up prices when demand is high. But the Uberfication of pints is a step too far. 

A good pricing strategy is one that is clear and gives the impression of value for money. Yet Stonegate’s policy could see the exact same beer or wine change price within the space of a round, which is neither.

Its communication with customers are also murky at best. Customers are notified that dynamic pricing is in place due to a small sign placed on their tables. This notice neither details what the increase is nor what time it runs from and to. We might all dislike Uber charging £20 more for a taxi ride at peak times, but it is at least clear about the costs up front.

Taking a more empathetic approach

When personal budgets are already stretched and margins are thin, this is a move that will leave punters with a choice between going out or staying in.

The prices of drinks have naturally been increasing with time anyway, due to the hangover from Brexit and the Covid-19 pandemic. To artificially inflate them on top of actual inflation feels, frankly, mean.

Stonegate has swung and missed. The company has drastically underestimated the public’s willingness to vote with their feet, particularly the increasingly health-conscious gen Z, who are already drinking less in general

It has also misunderstood its pricing power. There is a reason the hospitality industry opts for deals, such as happy hours, that reduce the price: it needs to attract people at quiet times, not put them off during busy ones. Reducing the cost of a pint on a Tuesday afternoon when the place is quiet will encourage more people to socialise and generate revenue that the company doesn’t usually get when it is open anyway. 

That’s the takeaway for business here. On paper, Stonegate’s strategy appears to make sense. If it has higher costs when it’s busy, why not increase the price? But the reality is that customers aren’t expecting it and don’t like it – and many still have a plethora of other options to choose from. Options which aren’t going to penalise drinkers on the days and times they choose to relax and socialise. 

Sometimes it’s good to row against the tide. In this case, the tide is at risk of drowning Stonegate.